Gottlieb Explains How the Change in the Law, and in CBO’s Category of Risk Corridor Payments, Could Imperil Insurers EarningsJanuary 30, 2015
“First, the Congressional Budget Office downgraded its categorization of the risk corridor program in the federal budget, changing it to discretionary from mandatory. This is a clear declaration that will reinforce the view that the money may never materialize. Auditors will have to take note of this formal change. The CBO also reduced its projected spending from the risk corridor program for 2015-2017 to $5 billion, from an earlier estimate of $9 billion. This is another explicit signal that CBO believes that potential the funding stream may be over-estimated.
The uncertainty of this funding was underscored by another event this week: the planned liquidation of the CoOportunity Health co-op in Iowa and Nebraska. In that unfolding process, auditors determined that the large risk corridor receivable that the co-op was carrying on its balance sheet was now in jeopardy of non-payment from CMS due to the statutory changes made to the program in the Omnibus.
This reckoning by audit firms could likely force the hands of other health insurers to make similar revisions to their own projections. Plans that were relying more heavily on money from the 3Rs could find that they need to lower their earnings forecasts as a result, and take a charge for 2014 on money that doesn’t materialize. In the case of CoOportunity, auditors clearly concluded that the new legislation meant that the insurer could no longer accrue for the risk corridor money.
The risk corridors were made controversial precisely because the Obama Administration seemed to change the program’s rules of math, turning it from a provision that was widely perceived as budget neutral, into an open ended subsidy.
The Ombibus measure made it harder for CMS to skirt the program’s spending rails, ending what many argued was a bailout for the health plans. Now the hopeful projections that those plans made will be squared with the normal rules of math.”